– Miran, Waller Want More Rate Cuts; Williams, Others Equivocal If Not Hostile
By Steven K. Beckner
(MaceNews) – As the year drew toward a close following a third interest rate cut, Federal Reserve policymakers continued to display disunity on the rate path ahead, as officials put different weights on the Fed’s “price stability” and “maximum employment” mandates.
The sharply divided Federal Open Market Committee’s Dec. 10 cut in the federal funds rate brought the total amount of monetary easing done by the Fed’s policy group since September 2024 to 175 basis points, but still left the policy rate some 60 basis points above “neutral,” based on the Fed’s own estimates.
Yet, while some policymakers think the Fed should move more quickly to ease credit to avoid undue economic pain, others think the Fed must proceed slowly to guarantee that inflation stays on track down to its 2% target.
The divisions make for an uncertain monetary policy outlook approaching the FOMC’s late January meeting and seem to bode for a continued high level of dissents from a body that traditionally has taken pains to show greater consensus.
Two top Fed officials — Fed Governors Stephen Miran and Christopher Waller — called for further monetary easing a week after the FOMC lowered the funds rate by 25 basis points to a target range of 3.5% to 3.75%, though the former was more outspoken than the latter.
Others were more equivocal, if not outright hostile, to additional rate cuts.
New York Federal Reserve Bank President John Williams echoed Chair Jerome Powell in saying the FOMC’s final rate cut of 2025 left the central bank “well-positioned” to make future rate adjustments depending on how the economy evolves.
Boston Fed President Susan Collins, who voted for last Wednesday’s rate cut, said she “would want greater clarity about the inflation picture before adjusting policy further.”
Atlanta Fed President Raphael Bostic sounded even more adamant that inflation, not labor market softening, should be the Fed’s main focus for the time being. He suggested the FOMC has no business cutting rates at all next year.
Last Wednesday’s rate decision was marred by a rare three dissents – one (Miran) in favor of more aggressive easing, two in favor of leaving rates unchanged (Goolsbee and Schmid).
With that move, the FOMC has cut the funds rate 175 basis points over the last 15 months, but at a median 3.6% the policy rate remains 60 basis points above the FOMC’s median 3.0% estimate of the “longer run” “neutral” rate.
In multiple ways, the FOMC signaled a pause in rate action at its next scheduled meeting of Jan. 27-28.
First, using revised language in its policy statement, the FOMC said, “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” As Collins observed Monday, that phraseology “echoes language in the December 2024 statement, which preceded a pause in cutting rates.”
Second, Powell, in his post-FOMC press conference, observed that cumulative rate cuts had brought the funds rate down to “within a range of plausible estimates of neutral and leave us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks.”
With the January meeting in view, Powell added “we are well positioned to wait and see how the economy evolves from here.”
Finally, on their reviewed Summary of Economic Projections, the 19 FOMC participants median projection was for just one 25 basis point reduction in the funds rate next year, although the projections ranged widely from rate hikes to substantial further reductions.
Sharp divisions remained evident the week after the FOMC meeting.
On one hand, Miran, who had dissented in favor of a 50 basis point rate cut, continued Monday to push the aggressive easing agenda he has pursued since being appointed to the Board of Governors by President Trump in September.
Miran, who is on leave from chairing the President’s Council of Economic Advisors to fill an unexpired term ending January 31, argued again that the FOMC has been overly worried about “excess measured inflation” and not sufficiently mindful of “genuine underlying inflationary pressures.”
“Given monetary policy lags, we need to make policy for 2027, not 2022,” he declared in a speech at Columbia University.
According to Miran’s calculations, “removing imputed phantom inflation like portfolio management, market-based core inflation is running below 2.6% ….” and “if we further remove housing and look at market-based core ex shelter, underlying inflation is running below 2.3%, within noise of our target….”
He warned that “keeping policy unnecessarily tight because of an imbalance from 2022, or because of artifacts of the statistical measurement process, will lead to job losses.”
There is no need for the Fed to risk labor market weakness, Miran argued, because “prices are now once again stable, albeit at higher levels.”
“Policy should reflect that,” he said, reiterating that “underlying inflation is near, and further approaching, our target.”
So, the FOMC should be focusing more on the “maximum employment” side of its dual mandate, Miran contended, because “experience suggests that labor market deterioration can occur quickly and nonlinearly and be difficult to reverse.”
“In part because monetary policy lags several quarters, a quicker pace of easing policy—as I have advocated—would appropriately move us closer to a neutral stance,” he added.
Waller was a bit less strident Wednesday, but he too strongly suggested he would be willing to cut the funds rate again, though he was vague about timing.
Waller, who has been prominently mentioned as a possible successor to Powell when his term as chair expires in May, said the FOMC has more room to cut interest rates, given weakness in the labor market.
“I still think we’re probably, you know, maybe we’re 50 to 100 basis points off of neutral,” he said at the Yale School of Management CEO Summit in New York.
However, Waller stopped short of calling for cutting rates again as early as Jan. 28, saying “there’s no rush to get down.”
“We just can steadily, kind of bring the policy rate down towards neutral,” he said.
Others were less clear on how they think the FOMC should proceed in the new year.
Williams had been unusually blunt in his support of a third rate cut ahead of the December meeting, but was considerably more reserved and noncommittal in Monday remarks to the New Jersey Bankers Association.
Echoing Powell, the FOMC Vice Chairman said, “Monetary policy is well positioned as we head into 2026,” adding that with the latest rate cut, the FOMC “”has moved the modestly restrictive stance of monetary policy toward neutral.”
Williams said it is “imperative” to get inflation back to 2% while not “creating undue risk” to the job market. “My assessment is that in recent months, the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat.”
Collins, like Williams, voted with the majority to cut rates last week, but left in doubt how she stands on further rate cuts Monday. Describing the Dec. 12 rate decision as “a close call,” she said, “While my analysis in November had leaned towards holding policy steady, by the December meeting, available information suggested the balance of risks had shifted a bit.
Collins said “scenarios with a notable further rise in inflation seem somewhat less likely,” but added that she “remain(s) concerned about potential inflation persistence.”
She made fairly clear that she does not think the FOMC should lean toward a January continuation of rate cutting. “It was important to me that the forward guidance in the Committee’s statement now echoes language in the December 2024 statement, which preceded a pause in cutting rates.”
“Policy is not on a pre-set path,” Collins said, uttering a conventional FOMC caveat.
“However,” she quickly added, “given a policy stance that is at the lower end of a range I view as mildly restrictive, I would want greater clarity about the inflation picture before adjusting policy further, to ensure a timely return of inflation to the Committee’s 2% objective.”
Bostic, who is set to retire by the end of February, took a strong position against further rate cutting for the foreseeable future in a “message from the President” released Tuesday by the Atlanta Fed.
“(A)fter wrestling with all the considerations, today I continue to view price stability as the clearer and more pressing risk despite shifts in the labor market,” he wrote.
Bostic, who will be participating but not voting in the January meeting, said he is “in no way dismissing concerns about the health of the labor market. I’m just not convinced right now that aggressive monetary policy is the proper remedy.”
“In the current circumstances, moving monetary policy near or into accommodative territory, which further federal funds rate cuts will do, risks exacerbating already elevated inflation and untethering the inflation expectations of businesses and consumers,” he continued. “That is not a risk I would choose to take right now.”
Bostic acknowledged in his Atlanta Fed essay that “the quandary of softening labor market conditions even as inflation remains materially above the Committee’s 2% objective” leaves him and his colleagues in “a tough spot.”
But he offered an extensive rationale for why he thinks the Fed should focus primarily on inflation.
Writing after the Labor Department reported a two-tenths uptick in the unemployment rate to 4.6% along with a larger than expected 64,000 November gain in non-farm payrolls, Bostic conceded “there is good reason to believe that conditions are softening,” but said “it is unclear to me whether the labor market is significantly out of balance since labor supply growth is also slowing due to changes in immigration policy and shifting demographics ….”
“(T)here are reasons why it is difficult to divine a clear signal to guide policy from prevailing labor market indicators,” he went on. “For starters, while labor demand is clearly declining, it is unclear whether cyclical or structural forces are responsible.”
Bostic cited four primary drivers of declining labor demand, two of which, normalizing staff sizes and labor-replacing technology, are “structural in nature, and thus outside of the purview of monetary policy.”
A third driver of reduced labor demand, uncertainty about Trump administration policy changes, is also “not something that any modest degree of monetary stimulus can overcome,” he maintained, adding that a fourth “driver,” squeezed profit margins, are not something from which the Fed can derive clear policy signals.
Bostic suggested the Fed should take some comfort from the fact that labor market cooling is thus far not being accompanied by weakening economic growth – this on a day when the Atlanta Fed’s GDPNow model projected 3.5% third quarter growth.
“(I)f we were experiencing broad-based cyclical labor market weakness, I would expect to see signs of significant economic weakening,” he wrote.
Bostic suggested that he and his colleagues need to withhold judgment on the need for additional easing, even as Miran and others plowed ahead with calls for further cuts.
Policymakers “still need to decipher a morass of dynamics to determine the labor market’s status relative to the FOMC’s goal of sustainable maximum employment,” he said. “Before we prescribe strong remedies for today’s labor market conditions—whether remedies come from monetary policy or elsewhere—we should understand the root causes of the shifts, and not just the symptoms.”
Moreover, Bostic pointed out that “inflation has exceeded the 2% target for nearly five years” – a fact which he warned risks the Fed’s credibility as an inflation fighter in a way that could erode inflation expectations.
Based on what Atlanta Fed surveys of firms in its sixth district, he said he sees “little to suggest that price pressures will dissipate before mid to late 2026, at the earliest, and expect inflation to remain above 2.5% even at the end of 2026 ….. Firms in our surveys expect to raise prices well into 2026, and by substantially more than 2%.”
“Especially worrisome is the fact that these inflationary expectations are not limited to importers directly affected by tariffs,” he added.
Bostic warned, “If underlying inflationary forces linger for many months to come, I am concerned that the public and price setters will eventually doubt that the FOMC will hit the inflation target in any reasonable time frame. Will the public lose faith after five years of above-target inflation? Six years?”
He said, “a half decade—and likely soon to be longer—of missing the inflation target could well imperil the Committee’s credibility as a steward of price stability.”
“Serious trouble awaits if inflation expectations for the medium- and longer-term drift upward and influence behavior in ways that produce higher long-run realized inflation,” he added.